Moody’s Blues: Major U.S. Banks Prepare For Possible Downgrades
- Posted on June 11, 2012 at 12:28pm by
Becket Adams
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Several major U.S. banks, including J.P. Morgan Chase, Bank of America Corp., Citigroup Inc., Goldman Sachs Group Inc., and Morgan Stanley, are preparing for the possibility of a downgrade by Moody’s Investment Service that could come by the end of this week, the Wall Street Journal reports.
The looming downgrades, which have been in the works since February, have leaders on Wall Street up in arms.
Citigroup chief financial officer John Gerspach said last month that the Moody’s ratings method “is backward looking and does not provide adequate credit to the strength and diversity” of Citi’s business or its main banking subsidiary, Citibank, according to a recent Dow Jones report.
“Every time Moody’s downgrades, it’s going to lower our universe of what we can buy,” David Fishman, co-head of global liquidity management for Goldman Sachs Asset Management, told the Journal.
Image courtesy the Wall Street Journal
The downgrades come at a bad time when the markets are already on edge due to the ever-growing financial crisis in the eurozone, the likelihood of a Greek exit, and the economic slowdown in China.
Furthermore, the effects of the downgrades could be far-reaching as analysts predict they will affect how “municipalities raise money to provide services and build schools, how money-market funds invest cash from companies and savers, and how banks raise capital to support their lending and trading,” the Journal reports.
The downgrades will only add to an already complex formula investors use to price debt. That is to say, investors don’t rely solely on ratings from Moody’s, S&P, and Fitch.
“In addition to bond ratings, investors look at capital ratios, loan-loss reserves, spreads of bonds and credit default swaps, earnings and business strategy, and macroeconomic factors and geography, according to the presentation,” the Dow Jones reports.
“One important market metric — the price of insuring bank debt — suggests investors indeed are looking beyond bond ratings when they gauge risk levels,” the report adds.
However, this isn’t to say that the downgrades, should they happen, wouldn’t adversely affect these businesses.
“The biggest impact could be to deprive some institutions of trading revenue,” the Journal reports. “A three-notch downgrade of Morgan Stanley could slash demand for derivatives, a crucial business on Wall Street, by around 30 [percent].”
Moody’s may downgrade Bank of America by one notch, Citi, Goldman, and J.P. Morgan by two, and Morgan Stanley by three.
“The Moody‘s action is concerning because it’s the beginning of what you might continue to see,” said James McCarthy, co-head of global liquidity management at Goldman Sachs Asset Management.
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grownup
Posted on June 12, 2012 at 6:20amWe know there are those working to collapse the EU and then us. One world order. To do that they have to kill most of the banks and put what is left under one roof. At the same time they must get our money, bust us. Foreclose on our properties. Keep us confused and fighting each other, and broke, to weak to put up resistance. Death through a thousand cuts.There has to be a plan for a new currency because they plan to inflate the dollar to nothingness.QE3. That is why everybody is buying gold and farmland. soros is also going into oil. Hilarious, yes? Not windmills.Thats a lot of money to print. Where will they do it? Is it being stock piled right now? If it is there are people who would know. It would take a lot of materials and know how. Surely it would need the backing of a state. The presses are massive and bring a massive price. And the people who make the plates, there can’t be more than a handful in the entire world.
Report Post »Canada_Goose
Posted on June 12, 2012 at 1:24amThis is kind of a dumb story.
The banks actually pay Moody‘s to grade their paper and they don’t like their ratings. Moody’s is essentially trying to save the banks from themselves by limiting their risk taking ability so that they can build up better reserves and they just hate it.
Also, I believe Berkshire Hathaway is one one biggest shareholders of Moody’s.
Report Post »dave7310
Posted on June 11, 2012 at 8:35pmDon’t worry…Bernanke will soon announce QE3 to bail out Wall Street and the Bankster’s, Gold will hit $2000+ / Silver $75+ (keep stacking) and “We The Sheeple” will have our IRA’s and 401k”s saved at least up until the election !
Report Post »The s**t is going to hit the fan soon !! The fan is already plugged in and the pile of s**t is only ‘10 away !!
dianna9490
Posted on June 11, 2012 at 8:59pmDoes this really surprise we Americans? What I would like to know: Is our paid Congressman and Senators shocked? Or are they prepared to tell Odumer ENOUGH IS ENOUGH – OR ARE THEY GOING TO LET OUR COUNTRY FAIL? They need to go ahead and do it – this will show the true colors of these paid idiots to be fired in Nov.! Lets take the fall so we Americans can rebuild our country BIGGER AND BETTER THAN THIS CRAP THAT IS GOING ON! All they are doing is making Americans even more mad than Americans already are! Maybe it is time for a civil war?
Report Post »TRILO
Posted on June 11, 2012 at 5:50pmI will believe it when I see it.
Report Post »Bracsim
Posted on June 12, 2012 at 8:11pmyou will see it soon, dont worry, your dream will come true
Report Post »Liberty_Effect
Posted on June 11, 2012 at 3:24pmDont worry Bank of America & Goldman Sachs, Romney is almost there….
Report Post »DocScience
Posted on June 11, 2012 at 4:11pmThese banks are client supporters of Obama.
I suspect Romney will not bail them out but go the tough love approach of Bain.
Report Post »KidCharlemagne
Posted on June 11, 2012 at 4:14pmApparently, they’re not THAT bad off:
——————————————
Candidate Comparison: Top Contributors
2012 Cycle
Mitt Romney
Goldman Sachs $573,080
Report Post »JPMorgan Chase & Co $415,075
Bank of America $398,850
Morgan Stanley $373,850
Credit Suisse Group $317,410
http://www.opensecrets.org/pres12/contriball.php?cycle=2012
unrealistic
Posted on June 11, 2012 at 3:18pm“they will affect how municipalities raise money to provide services and build schools”
Uh… schools… SCHOOLS! This will affect the schools! Oh, all the schools.. and … uh.. services… that will be affected.. If ONLY there were a way to save the schools and services! We cant let these banks fail… please… do it for the children.. and their schools.. *sad look*
Report Post »DGuy
Posted on June 11, 2012 at 8:38pmWell said… They use this same line EVERY time they want to bleed the taxpayer more.
Report Post »Individualism
Posted on June 11, 2012 at 3:16pmo boo hoo poor banks they still got billions of money and they get bailed out, sorry i don’t feel sorry and to some degree there getting their just deserts soon enough, which is a collapse and a denial of need by the community back to hard money folks and limited goverment when the system collapses.
Report Post »SLOWBIDEN
Posted on June 11, 2012 at 2:53pmHow could this be possible? The private sector is doing just fine.
Report Post »righthanddrive
Posted on June 11, 2012 at 2:46pmWhat a black eye for bank management – The Admin, Senators and Congressmen of our country. In case you are now scratching you head, I mean our banks have been nationalized with the ‘Too Big to Fail’ policy and the Bail-outs and that in fact our banks are managed by the Administration and overseen by Congress. If you think I am crazy, explain to me why the CEO of JP Morgan was made to appear before a Congressional sub-committee. A bit of our liberty and freedom died in the last four years but we have a big chance to correct it in November. Think about it.
Report Post »NOBALONEY
Posted on June 11, 2012 at 2:21pmSpain’s debt is 78% of GDP. U.S. debt is 102% of GDP.
Report Post »barber2
Posted on June 11, 2012 at 1:36pmThe Democrat’s ” Affordable Housing Act.” The economic catastrophe that just keeps on giving ! Use the Discrimination Card to pressure the banks to give loans to people with no credit history , no money down, and no jobs. ACORN members with bull horns in bankers neighborhoods. Watch the ensuing mess blow up. Then Blame the Banks for making bad loans. Blame Wall Street. Blame the CEOs. Blame the heartless taxpayers. Then regulate the banks to “change” their loaning / reserves . Then criticize the banks for not helping ” the little guy.” Then Blame Capitalism. Then repeat the cycle. Ah, just in time for election 2012 ! Any wonder why Fidel Castro’s daughter loves Obama ?
Report Post »Dougral Supports Israel
Posted on June 11, 2012 at 1:59pmYou can bet that anything coming from the Democrats with the word “affordable” in it will be affordable for all except those who have to pay for it.
Report Post »barber2
Posted on June 11, 2012 at 2:12pmDOUG: Agree. “The Affordable Housing Act ” is a classic example of the Big Lies that Democrats always tell ! Just like The Affordable Health Care Act ” / aka ObamaCare ! Guess that one was planned as the final coup to kill off American capitalism ! Can you imagine the damage that last mentioned sucker will bring to our economy….given the economic disaster The Affordable Housing Act is still causing…. There is NOTHING affordable about the Democrat Party..their Far Left policies are an unmitigated economic disaster to any successfully functioning economic system. Witness Europe.
Report Post »AllLost
Posted on June 11, 2012 at 12:58pmIt’s the END of the World and you know it
Report Post »djmaine
Posted on June 11, 2012 at 12:50pmThis is somewhat similar to the credit downgrades a person gets when their finances become risky to the bank. Behavior/strategies that decrease one’s ability to pay debts negatively affects their future opportunities to access credit. True whether you are an individual or a bank.
Report Post »Dougral Supports Israel
Posted on June 11, 2012 at 12:40pmPrediction: We will soon see a move to regulate how companies like Moody’s can rate financial institutions. The government and big Wall St. players don’t like having to face reality.
Report Post »Gonzo
Posted on June 11, 2012 at 12:37pmThey had no problem with Moody’s methods when they all had triple A ratings
Report Post »CatB
Posted on June 11, 2012 at 1:33pmSo now will they start paying interest on CD’s and savings? (.1 – .5 % is NOT paying interest!) if you get downgraded .. you WILL pay a higher interest rate .. isn’t that “fair” ;-) Didn’t think so!
Report Post »lukerw
Posted on June 11, 2012 at 9:03pmIn a Tax & Consume System… the people pay!
Report Post »The_Jerk
Posted on June 11, 2012 at 12:35pmShylock moneychangers!. Christ dealt with them, why shouldn’t we?
Report Post »Gonzo
Posted on June 11, 2012 at 12:42pmChrist had the authority to ‘deal’ with them, you don’t.
Report Post »Fubared
Posted on June 11, 2012 at 12:50pmJerky-
Report Post »Another back handed dig at the jews or just another day in antisemetic land? If you don’t go all the way and get a swastika between your eye brows, back off maybe a lil on the jew bashing, zionist pig, Israel sucks mantra? Was it a hot little number that rebuffed you or a bad loan?
barber2
Posted on June 11, 2012 at 1:39pmThe Well Named Jerk sent to taunt us nasty capitalists! Say “ hi” to Fidel’s daughter and the Obama folks !
Report Post »The_Jerk
Posted on June 11, 2012 at 3:09pmGonzo, we sure do. This is a worldly matter.
Fubared, you identified the root cause, not me.
Barber2, if you gave it any thought, you would see that the above named mob by Fubared is not capitalistic. They are moving to ‘centralize’ a one world currency. That plan of international socialism came out of the writings of yet another member of Fubared’s above mentioned mob. That would be Marx, the Jewish Marx.
Report Post »Individualism
Posted on June 11, 2012 at 3:18pmJesus Christ was a communist or a socialist and Marx converted to Christianity.
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